HÀ NỘI — The use of cryptocurrency and blockchains in Việt Nam is currently limited to just one per cent of the total population, though experts anticipate that the number could grow to 30 million users in the next ten years.

Nonetheless, the State Bank of Vietnam (SBV) has clearly stated that unlike legal tenders, cryptocurrencies such as bitcoin are not considered real money and thus not recognised as payment methods in Vietnamese law.

Bitcoin was first introduced to Việt Nam in 2009, and has since experienced double-digit growth each year in terms of users, and an average daily transaction value reaching the thousands of US dollars, according to Bitcoin Vietnam Co ltd., the self proclaimed first bitcoin platform in the country, established in 2014.

Subsequently, bitcoin’s blockchain, its own open, distributed ledger that records transactions between two parties using the coin in a verifiable and permanent way, is now also accessible in Việt Nam. 

As of late August this year, Prime Minister Nguyễn Xuân Phúc had ordered relevant agencies to draft a legal framework for cryptocurrency and other digital assets, which could mean that bitcoin and its like will be one day accepted in Việt Nam under appropriate management.

Nevertheless, at the moment, the issue has a number of loose ends, as the SBV still finds digital currency hard to control. Since bitcoin is a decentralised digital currency, its payment and control system works without a central administrator, so it poses latent administrative risks to the SBV in particular and central banks in general.

Investors’ money, SBV’s headache

Back in July, the SBV sent out a document clearly stating its non-involvement in managing bitcoin on the Vietnamese financial market, as this particular cryptocurrency is not a payment method according to the SBV.

This official document also stressed that since bitcoin and litecoin are not legal tender or legitimate currency, the acts of initial coin offering, generation, and use of such cryptocurrency as means of payment in place of legal tender are all prohibited with established sanctions.

The SBV stated that such prohibition is to keep investors safe against the speculative nature of cryptocurrency, especially when there has been a reported surge in the number of bitcoin mining rigs imported to Việt Nam, according to the General Department of Vietnam Customs (GDVC).

In reality, the increase in demand for bitcoin mining rigs has troubled administrative authorities, as the GDVC’s list of contraband goods according to Decision 187/2013/NĐ-CP does not regulate these machines, which are computers designed specifically for the decryption of bitcoin and litecoin, through which the process of adding transaction records to bitcoin’s blockchain can be completed, thus generating new coins.

The SBV and the GDVC have reason to believe that the hike in demand for mining rigs is due to a misunderstanding on the part of investors, as they mistakenly consider the aforementioned draft scheme to be an official recognition of bitcoin in Việt Nam.

As such, new concerns have arisen for Vietnamese authorities. Since bitcoin and similar cryptocurrencies are not accepted as legal payment in Việt Nam, the main purpose of most entities importing these mining rigs is to resell them at a higher price instead of actually generating new coins.

This would surely lead to a loss for many speculative investors, especially when the lifespan of these rigs is just around two to three months, with replacements worth more than $3,000.

The SBV has repeatedly warned domestic investors of the systemic risks that lie therein, but seemingly to no avail.

A coin toss

Back in 2009, the exchange rate for bitcoin was about 30 US cents per bitcoin, and it is now roughly US$4,000 per bitcoin, with a record high of $5,000, stated Hà Tôn Vinh, Chairman and CEO of Stellar Management Corporation during a September conference on digital cash and blockchain in Hà Nội. 

He commented that the sharp hike in the value of bitcoin is due to investors’ speculation, creating hundreds of millionaires in the span of less than a decade while expanding technology and financial application over other economic sectors with about $2 billion spent on bitcoin research over the past five years.

In Việt Nam, cryptocurrency, or digital cash, is available in popular forms such as debit or credit cards, or the recently introduced mobile wallets, and in rarer forms such as bitcoin or litecoin, said Terry O’Hearn, Chief Executive Office at iMozi Canada Inc, at the same conference.

According to O’Hearn, digital currency allows for direct transactions through an online payment device without the need for an intermediate financial entity, thus cutting down on transaction costs and increasing convenience.

After reaching up to $4,693 per bitcoin on August 29, 2017, the coin’s value has been gradually decreasing after China slapped restrictions on initial coin offerings, though there is no sign of speculation letting up.

Commercial bitcoin sites record a total capitalised value of the cryptocurrency’s market of up to $120 billion, allowing for a staggering return on investment (ROI) ratio. Any bitcoin investors with enough sway and funding can enjoy an ROI of 150 per cent in a month, as oppose to the stock market’s 11 per cent monthly.

As high returns come with equally high risks, the positive nature of the bitcoin market has soon been replaced with grim warnings from experts on the overblown value of the coin due to too much speculation, which can crash at any moment, leading to unimaginable devastation on financial markets.

Jean Y. Foo, Founder and CEO of Singaporean Mastermind Crate, pointed out at the said September conference that the difference between legal tenders such as the US dollar or Japanese yen and cryptocurrency is that while the former must be regulated by a third party during transactions, such as a Central Bank, the latter simply forgoes this step and relies on technological advances for security.

Therefore, there is no actual guarantee or failsafe mechanism against the coin’s bubble bursting, should it actually happen. And with the many risks that bitcoin investors and users must face online such as cyber attacks, theft, or blocked transactions, the SBV cannot guarantee their safety and financial security.

Still, as Vinh suggested, while several countries such as Japan now accept bitcoin as a legal payment method, it is nonetheless unregulated in the majority of economies including Việt Nam’s and is even heavily restricted in China. Thus, its definitive status as part of the economy is yet to be decided. — VNS